Japanese Tragedy Impact: Supply Chain Disruptions Increase
Significantly In North America. Inflation & Higher Costs Temper
Enthusiasm. Small Manufacturers See Business Improve, But Are Hiring Less

ATLANTA — (BUSINESS WIRE) — May 25, 2011 —
MFG.com, the largest global sourcing marketplace for the manufacturing
industry today announced the results of their latest two-part MFGWatch
Quarterly Survey of North American Manufacturers. Also, MFG.com has
conducted its first MFGWatch Quarterly Survey of European Manufacturers
to assess the manufacturing markets of EMEA and expand the survey to
measure regional, national and global manufacturing economic performance.

MFGWatch Survey of North American Manufacturers

Among the highlights of the Q1 2011 MFGWatch Survey of North American
Manufacturers:

Buyers maintained double-digit levels of growth in expanding their
stable of captive suppliers, with 16% indicating they have expanded
the number of suppliers to manufacture their products. This also marks
the second quarter of significant expansion in this area. However,
while these levels do mark significant overall growth, a flattened
growth rate coupled with missing the optimistic expectations expressed
in the previous quarter shows that caution exists among North American
sourcing professionals. Of particular note is the apparent lack of
seeking alternative sources in the face of the Japan disaster, as well
as fewer associated supply chain disruptions from Q4 ’10 (see Supply
Chain Disruptions results below).

While buyers indicate a slight drop in hiring over Q4 ’10 (down 3%),
the significant increase in companies that maintained steady
employment in the latest quarter (up 10% to 61%) shows a welcome
stability among North American manufacturers. Still, this ‘holding
pattern’ in manufacturing employment is likely a result of stated
trepidation due to rising costs and concerns for inflation in the
coming months.

The number of buyers reporting significant supply chain disruptions
jumped substantially by 5% (to 42%), matching numbers not seen since
Q3 ’10. While any increase comes as no surprise in the face of the
disruptions caused by the Japanese tragedies, it appears they have had
less impact on overall supply chains in North America than expected.

The number of buying manufacturers that report reshoring production to
North America fell to its lowest levels in a year (17%, down from 25%
in Q4 ’10). While companies reported in the press that are
repatriating work to the US continue to gain attention, this drop
likely is a result of sourcing and supply chain managers distracted to
maintain sources disrupted by the disasters in Japan in Q1 ’11.

For the first time in one year, fewer buyers indicate they will be
investigating a reshoring strategy to repatriate production to North
America from a low-cost country (27%, down from 32% in Q4 ’10). Some
of these downward trends in significantly altering sourcing & supply
chain strategies may be the result of a combination of the Japanese
tragedies and concerns over rising fuel/logistics costs seen in Q1
’11. But despite the drop in reshoring activity, the percentages of
current and anticipated return of production to North America still
represent remarkable movement.

While responses regarding reshoring slipped in Q1 ’11, a very
significant sampling (37%) of buyers indicate that their companies are
exploring moving or establishing production of product closer to their
market of consumption, regardless of location. This strategy may
indicate an adoption of ‘lean and green’ tactics that reduce total
costs of ownership, as well as reduce the carbon footprint for
companies and their product lines.

As expected, volatility in both supply chains (Japan) and logistics
costs (oil) propelled Fuel Prices and Logistics to the top of the list
of threats seen by supply chain and sourcing professionals in Q1 ’11.
The Availability of Competent Suppliers and Product Quality remained
high on the minds of these buyers, but they dropped in importance in
the face of rising costs in managing extended supply chains. Factoring
in Supplier Financial Health with the difficulties in locating
competent sources and maintaining product quality shows a significant
concern with overall supplier management for the third consecutive
quarter.

For the third straight quarter, small and medium supplier
manufacturers have seen business conditions improve. This upward trend
is encouraging, but their failure to expand this growth & confidence
to hire more employees casts a pall over these improvements (see
below).

A disappointing drop in the number of small supplier manufacturers
adding employees (26%) resulted in shedding the gains seen in Q4 ’10,
when the highest percentage (31%) reported adding employees. This 5%
drop is confusing since it coincides with stated improved business
conditions, and may be attributed to rising costs for fuel, shipping,
materials, and overall uncertainty regarding impending regulatory and
tax adjustments.

Despite the jump in numbers of buyers that reported experiencing
significant supply chain disruptions, fewer small supplier
manufacturers report receiving inquiries from buyers under duress.
However, the 33% that have received such requests in Q1 ’11 represents
a significant percentage, and it marks the 7 th consecutive
quarter that 1/3 or more of the reporting suppliers have encountered
buyers seeking to overcome supply chain disruptions or supplier
failure.

In perhaps the single most encouraging result from the MFGWatch survey
of manufacturers, 52% of supplier manufacturers report seeing
increased overall quoting activity and requests from potential
customers. Not only do these numbers support heightened business
conditions for shops and plants; they also indicate improved overall
business conditions at buy-side manufacturers and within overall North
American manufacturing performance.